Friday, July 8, 2011

A "Chained CPI"? Yes! For the CHAINSAW!

IN the 1990s, the über austerity and deficit hawk, Peter G. Peterson (the billionaire hedge fund owner and head of the 'Peter G. Peterson Foundation') had one major aim in mind which was to cut Social Security. Like the earliest enemies of FDR's program (see Max J. Skidmore's The Enemies of Social Security), he realized that direct cuts would be almost impossible to make - given the political popularity of the program - but if large enough deficits could be rendered, it might be possible to cut it "through the back door" and invoke deficits as an excuse. Thus, did he say "such a shining moment may not arrive again". Well, it did after the 2008 financial crash, delivering $800b in bank bailout, $900b in extended Bush tax cuts and $1.1 trillion more in two funding 2 "wars" (actually occupations).

In fact, this cutting already began two years ago with the elimination of the S.S. COLA, or cost of living adjustment, with the elites making the specious argument it couldn't be justified because the interest rates were so low, hence inflation was next to zero. It never occurred to these numskulls (or maybe it did) that seniors are in a different spending class given their ongoing medical and prescription needs, which costs have totally outpaced inflation!

Now being floated, and by a DEM President for cripes' sakes, is one of Pete Peterson's most famous (and earliest) proposed end runs for cutting Social Security: substituting the normal COLA (which as Sen. Bernie Sanders noted on Keith Olbermann last night was still below par) with a "CPI" (consumer price index) -based alternative, known as the "chained CPI".

By this new inflation measure, which reckons inflation (and hence adjustments) at barely one third of the original COLA, most seniors in the country will find themselves either dead or in the poorhouse - if it goes through! No, this is no fucking joke! Not with medical inflation increasing at a rate of nearly 14% per year!

So, despite the fact Social Security never contributed one red cent to the deficit, in order to show he's "bipartisan" (which Grover Norquist once described as "date rape" for Republicans) our bold and courageous DEM President is willing to give Repukes almost all the spending cuts they want (and then some - adding to nearly $4 trillion over ten years) in return for mildly allowing the Bush tax cuts to expire next year. Big fucking deal! Massive hurt and social catastrophe in return for a passive sunsetting of deficit-creating cuts that HE ought to have retired in December!

This "chained CPI" assumes that as prices increase, consumers will buy lower cost alternatives, reducing the amount of inflation they experience. (For example, if the price of stew beef or hamburger rises by 30 cents a pound, they'll opt for pork). BUT what these dingbats don't process is that this is fairyland, magical thinking! WHAT if both pork and beef prices increase and CHICKEN prices too? THEN WHAT?

Indeed, at the supermarket this a.m. I was rudely shocked to behold pork nearly as dear as beef! Maybe because the feds (again interfering) catered to Michelle Bachman's pleas for pork subsidies to thereby increase the cost, for her poor little Minnesota pork farmers! (Which MSNBC's Lawrence O'Donnell brilliantly described a fortnight ago as "socialism designed for Michelle Bachmann" and her toadies).

In other words, with the prospect of perpetual market interference for the big boys, whether oil, agriculture, banking or airlines...the rest of us are still fucked. What? We're then to opt to eat sardines every day? Wait, even their cost is rising! I suppose these geniuses expect us to eat seasoned sand or baked in the oven mudpies like they do in Haiti!

The other aspect, as Sen. Sanders observed last night, is that for seniors it isn't easy at all to find alternatives for high inflation products - since they're captives of the medical-industrial-pharmaceutical complex. Since our great government refuses to allow Medicare to bargain for the lowest cost drugs like the VA, those drug prices keep going up! Thus, it isn't like simply opting to buy a 33" LCD TV instead of a 55" flat screen HDTV! If you must have Lipitor, or some blood pressure meds, or others - say for depression - the total costs will ruin you if your total income is pared year after year by this "chained CPI" gimmick. (Which in the end is yet another evil product of the evil Pareto Distribution).

It's evil because as I showed in those two previous blogs (last month) on the Pareto and "Pareto efficiency", it regards the dollars of the wealthy and affluent as having more "utility" than the dollars of fixed income seniors, or the poor. Thus, in considering any option of whether to give more relief to fixed income seniors (who get their S.S. monies by simply existing and breathing every day) or the wealthy- who may invest it to buy yachts, $2 million 'Billy the Kid' tintypes, 50 Lamborghinis or blood diamonds, it's always better to give the money to the latter while letting the former suck salt, or pound sand. (Or jump off a cliff?) Since the "utility" of a senior dollar is only about one one thousandth of the utility of a buck from Jamie Dimon, it's much better to give Jamie big tax breaks (via tax cuts) than to preserve Social Security or a decent COLA for seniors! (Besides, Neoliberalism - such as both parties are now obsessively wedded to, disdains any financial security for the populace at the expense of their precious "free" markets - which can always use subsidies when they start 'malfunctioning', to keep the rest of us fucked to a far-thee-well!)

What does this change in COLA mean then? Basically smaller annual increases in Social Security payments, government pensions and veterans' benefits. (Current payments will not be affected but beneficiaries will get smaller payments in the future). As the potential cuts are phased in, a typical 65 -year old who opts for taking Social Security at 62 will get an annual reduction of $130 in his first year. In his second year, it will be $144. In his third year it will be $172 and in his fourth year, $186, and his fifth year, $200. Also at the end of this fifth year, a cumulative total $886 (for 5 yrs.) will have been lost by attrition, or equal to one month of his benefits.

By the time he's 85 the cut would be $984 a year and the total money lost by yearly attrition nearly $10,500.

That may well be $984 he'd originally have been able to use for food, meds, or heating oil which now won't be there! I suppose, given the hare-brained theory behind this Chained CPI, he will have to opt for more sweaters, fur parkas (if he has any) or - if push comes to shove- building small fires in his apt.! Now, if average Social Security benefits are curently $1,100 that means by age 85 the senior will lose nearly one month's worth of benefits as evaluated today, but assuming 4% yearly inflation, nearly 112% of what his monthly dollars will be worth THEN (e.g. $880). But, what if even worse inflation occurs such as seen during the Arab Oil Embargo? In that case, our senior's expenses (especially in food, heating oil) will be almost entirely consumed by the time he's 85, leaving him (in the case of 11% inflation as in 1973) with about $4,000 a year to manage all his expenses. Well, there's always the six chamber option!

There are also income tax implications if this idiocy gets passed. Low wage workers would see the biggest increases to their tax bills, with those (such as work at Mickey D's) and earning between $10,000 and $20,000/yr. seeing a 14.5% increase. Meanwhile, taxpayers earning more than a half million a year will see a 0.3% tax increase - maybe the difference between buying that new yacht or opting for one a year older!

Needless to say, this abomination and perfidy must be fought with all the force and intensity that we also used against Bush's (2005) attempts to privatize Social Security! It is sad we must inveigh against a (putatively) Dem president (though he does evince a disturbing fascination for major supply side tax cutter Ronnie Ray-gun) but there it is. We play with the hand we are dealt and we fight on the landscape presented. We didn't want this combat, but we're not going to roll over and allow it for some Neo-liberal political expediency.

Obama may well believe and think he can win many moderates next year for his display of "bipartisanship" - but it will not do him much use if his liberal base (the ones that ensured his win in 2008) don't show up, like they didn't last year. Never ever make the mistake of assuming that those voters are "yours" or have "nowhere to go". They do, which is to stay home if none of the choices appeal, and the prez they would have voted for has broken too many promises. And as we see through history, shat-on dems always - if they do vote- cast for real republicans as opposed to repub lite. (Exhibit A: The Reagan Democrats).

Re: the just announced 9.2% unemployment rate which bodes even worse for Obama. This is totally in line with the predictions I've already made (see blog before last) on the matter of lowered aggregate demand. BUT...if Obama allows or enables massive spending cuts to go through, thereby triggering more massive consumer demand pull back, that figure will absolutely soar - by multiple tenths each month not single tenths. As I have predicted, if $2 trillion in cuts to social safety nets is allowed, the ensuing crippling demand will engender 18% unemployment by next summer. No, this isn't a fairy tale like the alleged alternatives for seniors under the "Chained CPI" hammer.

Once more, we are in a poor demand environment! The solution therefore is NOT tax cuts...for ANYONE! It is pumping demand by MORE spending! YES KEYNSIAN ECONOMICS not retardo, NEO-liberal - Pareto Efficiency BULLSHIT economics!

We hope that, given this, Obama will rethink his plans and not give a sop so easily to Boner and his repukes! (Which one wit has compared to a kid giving up his lunch money before the bully even demands it. But then, this more and more appears Obama's modus operandi!) We do not want the Democratic brand damaged in perpetuity, as it will be if this revised "COLA" is enabled to pass!

About Me

Specialized in space physics and solar physics, developed first astronomy curriculum for Caribbean secondary schools, has written thirteen books - the most recent:Fundamentals of Solar Physics. Also: Modern Physics: Notes, Problems and Solutions;:'Beyond Atheism, Beyond God', Astronomy & Astrophysics: Notes, Problems and Solutions', 'Physics Notes for Advanced Level&#39, Mathematical Excursions in Brane Space, Selected Analyses in Solar Flare Plasma Dynamics; and 'A History of Caribbean Secondary School Astronomy'. It details the background to my development and implementation of the first ever astronomy curriculum for secondary schools in the Caribbean.